Scalping | The E-mini Trading Professor

What is the Market Going to do Today?

December 3rd, 2010 |

Author: admin

I am invariably asked this question as I begin each day in the trading room. Will the market go up? Will the market go down? There is a gap up…does that mean the market is going to fill the gap immediately or maybe wait until later in the day? I almost always disappoint the individual asking the question by answering, “I really don’t know.”

Even worse, I really do not know.

Predicting which direction the market will move can be one of the most embarrassing propositions for any trader to undertake. Of course, you have at least a 50% chance of being right, which is some consolation. Generally speaking, though, I don’t have the slightest idea which way the market will move, and many find this disturbing. As a trader, many think you ought to have some general idea as to which direction will move. But I am a scalper, and I don’t concern myself with predicting which way the market will move.

I am looking to catch areas of momentum and ride that momentum until it subsides. Instead of knowing which way the market is going to move, I am simply hitchhiking a ride as the market moves in one direction or the other. I am quite comfortable reacting to the market as oppose to predicting what the market might do.

Scalpers use a number of techniques to identify areas of potential momentum. First and foremost, most useful information is contained in the actual price action in the market. Oddly enough, price movement is often ignored in favor of a variety of oscillators, rate of change indicators and a number of exotic charting systems. I am not interested in many of the popular predictive systems like Elliot Wave analysis, Gann Lines, or systems of a similar ilk, but I want to make sure I point out that my opinion does not imply these systems do not work. My point is a simple one, these systems do not work for me and I do not use them.

No, I am far more interesting in support and resistance, trend lines and momentum. I have an important maxim: Trade primarily with the trend. I allow myself one countertrend trade per day, and that is usually one too many; but there are many very enticing set ups that occur countertrend and learning to lay off these trades is a challenging job. Most traders find that countertrend trading is an unprofitable method in which to trade. Further, the empirical scientific evidence bears out one indisputable fact; trading against the trend is far less profitable than trading with the trend. For a scalper, trading with the trend the majority of the time is imperative.

I also employ, in varying degrees, forms of Fibonacci analysis. I have never been convinced that the underlying principle of Fibonacci is valid; that is, the market moves in natural cycles that can be predicted using the Fibonacci sequence. One thing I know for sure is that enough people trade using Fibonacci analysis that the system works. Whether Fibonacci works because so many people use it or it is intrinsically valid is of little consequence to me; I don’t care why it works, I only care that it does work and therefore employ some tenets of the system in my trading.

In summary, I am a scalper and I am interested in momentum in the direction of the trend. I don’t use predictive trading systems; I rely upon price action, support and resistance, trend lines, and some limited use of Fibonacci analysis. I keep it simple and try not to overload my methodology with extraneous charts and unnecessary information. Scalping is not for everyone, but it is a very effective method in which to trade.